The Government has increased the amount of new money NS&I can raise this
year, leading to speculation it could increase its rates to attract savers

National Savings and Investments (NS&I) was given the go-ahead to take in more deposits from savers in the Autumn Statement, leading to suggestions that it could raise its interest rates in the near future.

NS&I has been forced to cut its rates over the past two years after savers flocked to the Government-backed savings provider during the financial crisis. Yesterday’s change to its targets could signal a return to more competitive rates.

To control how much money NS&I raises, it varies its interest rates and product offering. By making these more competitive, it attracts more savers and increases its total deposits.

NS&I said it is unlikely to increase rates this year because it is already at the top end of its new target, but speculation is mounting that rates could rise in 2014/15.

Andrew Hagger of money advice website Moneycomms.co.uk, said as NS&I looks to take in more deposits, it will improve its rates and product range to attract new customers.

“To get more money in NS&I will need to do something positive, whether it increases rates or introduces new products,” he said. “I wouldn’t be surprised to see it launch a new one-year bond or something similar.”

In yesterday’s Autumn Statement, the Government increased NS&I’s financing target – the balance of inflows and outflows – to £2bn, with an acceptable range of between zero and £4bn. This is up from a target of zero, as set in the March Budget.

The state-backed savings provider said it expects to raise £3.5bn by the end of the year.

Anna Bowes, director of rate monitoring website Savingschampion.co.uk, said NS&I is unlikely to reintroduce its index-linked savings certificates, which were extremely popular because they guarantee to rise in line with inflation on the Retail Prices Index.

She said index-linked certificates would “sell out in a flash” because there are very few products available that match inflation, but NS&I would be reluctant to offer them if it is already raising enough money from savers.

“Index-linked certificates would fly off the shelves, but by the look of it NS&I does not need to do this, or boost its rates in the short-term, because it is still bringing in a lot of money at the current lower rates,” she said.

An NS&I spokesman said it definitely will not reintroduce these products this financial year and declined to comment on whether they will be offered in 2014/15.

NS&I has made a number of cuts to its rates this year. It cut the total value of prize money paid to Premium Bond investors from 1.5pc of the total invested to 1.3pc. This affected 22m investors.

NS&I also cut the savings rates for its Income Bonds, from 1.75p to 1.25pc, Direct Isa, from 2.25pc to 1.75pc, and Direct Saver, from 1.5pc to 1.1pc.

When the financial crisis struck in 2007 and the banking system faltered, savers flocked to NS&I because it guarantees 100pc of deposits. Other financial institutions only guarantee deposits worth up to £85,000.

NS&I is bound by rules that force it to balance the interests of three parties - the Government, savers, and the banking industry – and the flood of money going into its coffers upset this balance. The Government ordered NS&I to stop taking so much money and as a result has made numerous cuts to savings rates and accounts to dissuade savers.

But the yield on gilts – the other source of Government funding – increased this year, making it £351m more expensive for the Government to raise the equivalent finance through gilts than through NS&I deposits. As a result, the Government increased the amount NS&I can raise.

Jane Platt, chief executive of NS&I, said: “We know that we occupy a unique position at the heart of the UK savings sector. Today’s revisions to our net financing and value indicator targets mean that we can continue to offer our savers rates which we believe are fair and balance this alongside both the long-term delivery of cost-effective financing and our role in supporting stability across the financial services sector.”